City of Light: The Story of Fiber Optics

EPILOGUE: THE BOOM, THE BUBBLE, AND THE BUST 251
Yet in part the industry had fallen into the peculiar reality distortion field
of a market bubble. My phone was ringing constantly with questions about
fiber optics, many of them naive. Venture capitalists were flooded with business
plans, but more than a few were dubious. Companies were deluged with
orders, but didn’t check to see if their new customers could pay their bills.
We deluded ourselves into thinking it could go on forever.
The flow of capital continued. Start-ups sprouted like weeds. Narinder Kapany
returned to entrepeneurship, as chairman of a company called K2 Optronics
in Sunnyvale, California, with his son Raj Kapany as president and
chief executive. Will Hicks continued working on high-bandwidth projects.
Dozens of engineers and executives struck out on their own with business
plans in hand.
Mergers took stock values into the stratosphere. In July 2000, JDS Uniphase
announced plans to merge with another maker of fiber-optic components,
SDL Inc. On the day of the announcement, the deal was worth $41
billion in JDS stock, just a few billion less than the gross domestic product of
oil-rich Kuwait. The fiber-optic bubble had created incredible wealth. Successful
entrepreneurs I had known for years were worth hundreds of millions
of dollars on paper. At the peak, the president of SDL was worth over a billion
dollars, putting him number 218 on the Forbes list of 400 richest Americans
that was compiled in August 2000. 41
By the fall of 2000, telecommunications stocks were slipping from their
peaks. The NASDAQ composite sank below 4000 in early September, and by
mid-December was below 3000 for good. Yet the industry didn’t want to
believe the gold rush was over. One day, in a contrary mood, I suggested to
someone that ‘‘tulips’’ might be a good image for the market. ‘‘Don’t say
that,’’ he warned, as if mentioning the infamous seventeenth century Dutch
bubble might deflate the fiber bubble.
The real danger to the fiber-optic bubble was reality. Telephone traffic was
growing at only a modest rate. Internet growth had slowed to roughly doubling
every year. But contractors were working overtime laying new longdistance
fiber-optic cables on land and at sea. Analysts began to wonder if
the supply was exceeding the demand. Like tulips, the possibility of a fiber
glut was something the industry did not want to consider.
The Bust
The Optical Fiber Communication conference moved to Anaheim, California
in March 2001, across the street from Disneyland. The choice had nothing
to do with being next door to the ‘‘magic kingdom.’’ The affair had reached
a size where few convention centers could handle it. The organizers expected
more than 30,000 people, and they counted 38,015 from March 19–22,
more than double the Baltimore crowd. The trade show also more than doubled
in size, with 970 companies spread through 270,000 square feet of